Spanish Mortgage Law: Latest News for property owners

The Spanish Congress of Deputies approves a new mortgage law.

The new law will come into force in March 2019, once approved by the Senate and published in the Boletín Oficial del Estado (Official State Bulletin).

In this article, we discuss the main changes brought about by this new law that you should be aware of if you’re planning on applying for a mortgage loan in Spain.

The banks have to pay the expenses, except for the valuation.

Banks will cover all the formalisation expenses of the mortgage loan, including:

– Impuesto de Actos Jurídicos Documentados (AJD) or Stamp Duty

– Deed processing expenses,

– Administrative agency’s fees

– And the Notarial Levy.

The buyer will pay the property’s appraisal and the copies of the deed that he or she requests.

Early repayment fees are reduced.

Buyers will be paying less commissions should they decide to cancel the loan before the agreed time.

Penalties will depend on the moment when the repayment occurs and the type of mortgage.

The cancellation of a variable interest mortgage loan incurs:

– From the third year onwards: 0.25%

– From the fifth year onwards: 0.15%

The cancellation of a fixed interest loan incurs:

– During the first 10 years: 2%

– From the tenth year onwards: 1.5%

The eviction process is delayed.

The bank will not be able to start a foreclosure process on a property until the client’s default exceeds 12 monthly payments or the amount due exceeds 3% of the loan during the first half of the mortgage’s life.

After that time, the term is 15 monthly payments or 7% of the loan’s principal.

Up until now the bank was able to initiate the process prior to eviction if the client had not paid three instalments.

Dation in payment.

The bank and the buyer will now be able to incorporate into the contract the possibility of a dation in payment or acceptance in lieu.

What does this mean?

It’s simply a different mode of discharging a debt or claim whereby the debtor gives the creditor with the latter’s consent “something in full satisfaction of the obligation but of a character different from that originally called for by the obligation”.

However, the new mortgage law does not establish that mortgage loans must include this alternative form of paying off the debt with the delivery of the home.

“Green mortgages” are rewarded.

Energy efficient homes or those that use renewable energy may opt for a “green mortgage“.

The “green mortgages” will be exempt from paying Stamp Duties.

Prohibited “linked products”.

Banks are not allowed to force clients to purchase other products in exchange for granting them the mortgage as “linked products” are now forbidden.

However, “combined offers” are allowed, that is – banks are still able to offer products which represent an improvement on the loan conditions.

“Floor clauses” are prohibited.

Floor clauses will be prohibited by law, although these will be considered legal when they are clearly included in the mortgage contract and there is evidence that the buyer understands their consequences.

Buyers receive a draft before signing the final loan.

The bank must deliver the mortgage’s draft to the client 10 days before the agreed signing date.

This way, the notary can ensure that the mortgage loan complies with current legislation and that the client understands the loan’s contract.

The advice given by the notary will be free.

The change from variable to fixed mortgage is facilitated.

A maximum commission of 0.15% is fixed.

Mortgages can be subrogated and novated without incurring any commissions.

Any mortgage subrogations and novations will be free as of the effective date of the law.

This will give more freedom to the mortgagee and facilitate competition between entities.

Will the new mortgage law be retroactive?

If you are currently negotiating a mortgage loan in Spain you are probably wondering what happens if your mortgage is granted now, before the law is published in the BOE.

Are you still entitled to have the bank pay those expenses?

Can you make a later claim?

Unfortunately, the new mortgage law in Spain will not be retroactive, except in the subrogation of a mortgage contract signed before the entry into force of the law.

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